The distribution model used by the financial services industry to move investment products often begins with the DTCC (Depository Trust Clearing Corporation—formerly NSCC). The DTCC clears a majority of the investment market's equity, debt and mutual fund trades. Additionally, the DTCC clears some industry insurance transactions. Financial services firms such as Broker Dealers, who transact business through the DTCC, must either be a Clearing Broker Dealer or a correspondent to a Clearing Broker Dealer. Clearing Broker Dealers generally have systems that facilitate trading with the DTCC.
There are various types of Broker Dealers, including for example, insurance based Broker Dealers, bank based Broker Dealers, independent Broker Dealers, specialty niche Broker Dealers, and others. Insurance-based Broker Dealers have evolved to support the distribution of variable life and annuity products. In some cases, the insurance based Broker Dealers have grown to be quite sophisticated in order to attract sales professionals to sell not only the insurer's products, but other investment products.
Changes in legislation have allowed bank-based Broker Dealers to grow and acquire similar entities. As such, bank based Broker Dealers have become more sophisticated over time. They continue to attract representatives from wire house firms (i.e., Merrill Lync®, Paine Webber®, etc.), and train their representatives to focus on cross-selling bank and bank-related financial services. The cross-selling nature of their business requires the focus of referral tracking (identifying who in the bank or division referred the customer to the representative).
Independent Broker Dealers have been formed over time to provide a vehicle for successful registered representatives who have built their businesses through the traditional wire house environment. These successful professionals are attracted to the independent Broker Dealers because of an enhanced payout schedule. They are, however, often disappointed by the technological solutions provided by the Independent Broker Dealers. Affiliate offices are typically tied to independent Broker Dealers.
Specialty niche Broker Dealers have been formed to support vertically aligned specialty firms such as accountancy corporations and consumer and mortgage loan providers. These professionals attempt to cross sell their primary customers additional investment products.
Over the past few decades, the development and use of computers and computer technology to help manage the business of the larger financial service firms has grown rapidly. Smaller Broker Dealers have been left behind, however, because the commercially available technology solutions are simply cost prohibitive. Also during this period, the number of products offered by the financial services firms have increased substantially. Many of the product offerings were added in an incremental fashion, over an extended period of time. Consistent therewith, the software products developed to support the various product offerings were also incrementally developed. The legacy of this environment is a group of rather expensive yet powerful software applications that operate and are accessible primarily independently of one other, resulting in multiple standards, redundant files, and often data errors and failed system cross-processing. In many cases, such systems have caused significant harm to customer relationships and firm reputations.
What would be desirable, therefore, is a more affordable integrated system that assists financial services firms such as Broker Dealers in efficiently managing their businesses, and developing and maintaining strong customer service and loyalty.